Capacity Utilization is the Key Cost Driver

Delivery Services

When servicing retail customers the delivery services are responsible for the delivery of products to customers or consumers. The service activities include, physical deliveries, unloading of goods, quality control, product rotation, damaged product collections, payment collections, backroom organization, building customer relations and record keeping.

When designing and developing the delivery service systems there are many influence factors that must be analyzed to develop the optimal sales and distribution system. The planning factors are constantly changing and generally there is no single right solution. However, there are many known principles that must be honored, analyzed and understood to develop the optimal solutions. Due to the dynamics scale there is a need to study distribution efficiencies and effectiveness systematically.

One cannot design the service systems without knowing what the prioritized channels are, that the company wants to focus on? This is in terms of, number of outlets by channels, the service levels by channel, the brand plans, the pricing and packaging plan and the look-of-success. To come up with the optimal service systems design then a bottom-up approach must be applied. This means to build the service systems, by studying and working separately in three levels of details.

· The Country level of detail
· The sales district level
· Outlet level

Customer and consumer demand at outlet level ultimately determine the service systems solutions. The technical solutions designed (data process) are bottom-up approach across all the three levels. We begin working at outlet level information and work our way up to a country level by aggregating the outlet level information according to fixed methodology. The channel strategies and consumer demand at outlet level are therefore the core drivers to build the optimal service structure and they influence the total recourses needs. There are also other influence factors such as the products characteristics, agreed service levels by channel, the road-network, traffic and distances among several other factors that must be taken into consideration.

Several companies design and implement hybrid service systems where for example urban areas are serviced directly by the company itself and rural areas are managed by distributor service partners. This is to maximize the services at minimum cost and as well as operating the services systems at minimal complexities. Experience tells us that powerful distributors can open doors to new markets and areas resulting in increased sales, market share and profits.

Many companies have chosen to operate with third party distributors or wholesaler distributors, for various reasons. Using third party can simplify the business structure because it is not required to invest in delivery fleet – having to manage the fleet on a daily basis. Third party distributors and wholesalers can open immediate access to new markets at same time they can lower the capital investments risks to a minimum. Through critical mass the third parties and wholesalers can be very competitive in prices for their services. However, using third party can result in difficulties to manage the point-of-purchase and slow down growth opportunities. Many companies that utilize third party distributors face difficulties in managing retail prices, and having limited access to outlet sales information, and complexities in managing new products introductions, resulting in loss of market control.

Generally the third party and wholesalers charge fixed commission per case sold for their services. It can be a good strategy to use third parties in areas where they provide competitive strengths.

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